Credit agreements - what does the small print say?

That tiny text at the bottom of your credit agreement is actually very important… who knew?

Whether you’ve got a loan or a credit card, we’re exploring the ins and outs of your agreement.

What is a credit agreement?

First things first, let’s clear up what a credit agreement actually is. When you’ve been accepted for a loan or a credit card - or even a store card - you’re likely to receive an agreement from the lender. The agreement covers the details of the deal, including your rights as a borrower. Both you and the lender will have to sign this deal in order to go ahead with the contract.

What to look out for before you sign

The APR

APR – or annual percentage rate – is a term you’ll hear a lot when you take out credit. Simply put, it’s the price you pay the lender on top of what you borrow, over a year. It’s particularly important to look at the APR figure once you’ve received your credit agreement, because it may not be the rate you were expecting.

If you’ve got a bad credit score, you might be offered a higher APR than what you saw advertised. The APR you’ll have seen is technically the most common rate, but it only has to be offered to 51% of customers before it’s advertised as the going rate.

When you’ve checked your APR figure, think carefully about whether you can afford the repayments on the amount of credit you’re likely to use. Some lenders offer a 0% interest period or introduction period, so make sure you know when these end and what the APR is likely to be after this period.

Early repayments

If you’ve taken out a loan, you’ll need to check the T&Cs for the lender's policy on early repayments. You might think that paying off your balance before the agreed term is only ever a good thing – and while that’s true for credit cards, it might not be the case for loans.

Loan lenders make their money from the interest based on the length of the loan, so it’s worth checking the small print to see what fees you might be charged if you pay your loan off early. If you think you’ll want to pay your loan off before the term ends, a credit card might be a better option for you. Or, you could agree a shorter term with the lender based on what you can afford each month.

As for credit cards, you’ll need to check when the minimum payment is due so you can make sure these are paid on time. Setting up a standing order could help you keep on top of your repayments.

How to make payments

Once you’ve received your agreement, it may be a good idea to work out how and when you’ll make your payments. For example, if you’re prone to forgetting things, you could check the agreement to see how you could set up a Direct Debit or a Standing Order to make payments. With this in mind, it’s worth checking the small print for when you can expect money to be taken from your account, and whether you can amend the date or amount should you need to.

Your right to cancel

If you’ve taken out any credit, your agreement will most likely cover your right to cancel within 14 days. According to the Consumer Credit Act, you’re within your rights to cancel the contract even after you’ve signed the agreement, providing it’s within the 14-day period. It may be a good idea to check how to cancel under these terms if you need to.

It’s also wise to check what happens beyond this ‘cooling off’ period, too. If you’ve used your card to buy things, but want to cancel your agreement, you’ll probably need to either return the purchases or find another way to cover their cost. If you’ve paid a deposit or part-payment with your card, you’ll more than likely get your money back when you cancel, but it’s worth checking the terms before you do so.

Hidden costs and fees

It’s worth checking your credit agreement to see whether you’ll have to pay any hidden costs, such as admin fees or early repayment charges.

Other fees to watch out for include late payment fees and charges for exceeding your credit limit. It’s always important to check the costs of these charges because circumstances can change, so you’ll need to know if you can afford to pay these fees should the worst happen.

The moral of the story…

If you do get accepted for credit, then be sure to give yourself time to read through all of the small print and look out for the key things we’ve mentioned. It might be a little tedious, but you could save yourself some confusion down the road.

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